Pakistan and Norway Sign Carbon Trading Pact — First Bilateral Climate-Finance Deal Targeting Pakistan's Power Sector

Pakistan and Norway have signed a landmark carbon trading agreement that creates a bilateral framework for Norway to fund emissions-reduction projects in Pakistan's power sector and claim the resulting carbon credits toward its own Paris Agreement targets — the first such deal Islamabad has concluded under Article 6.2 of the Paris rulebook.

How the deal works

Under Article 6.2 of the Paris Agreement, one country can finance an emissions-cutting project in another and count the verified carbon reductions ("Internationally Transferred Mitigation Outcomes" or ITMOs) toward its own national contribution. Norway, which has stricter near-term net-zero targets than its domestic abatement potential allows, becomes the buyer; Pakistan becomes the host.

What gets funded

The MoU identifies four priority project categories — all in Pakistan's power sector:

• Utility-scale solar and wind with battery storage, displacing furnace-oil and LNG-fired generation.
• Net-metered rooftop solar scale-up for commercial and industrial consumers in Karachi, Lahore, and Faisalabad.
• Grid-scale energy efficiency — losses reduction, smart-meter deployment, and demand-side management.
• Methane abatement at coal-fired plants and gas processing facilities.

The Norwegian government has committed an initial USD 50 million tranche, with a USD 200 million ceiling subject to delivery of verified emissions reductions over five years.

Why this matters for Pakistan's power transition

Pakistan's biggest barrier to faster solar and wind build-out is not technology or land — it is project finance. Climate-targeted concessional capital like the Norwegian tranche carries a lower cost than commercial debt and is denominated in a way that reduces foreign-exchange exposure on the resulting tariffs.

If the pilot succeeds, the same Article 6.2 framework could unlock additional bilateral deals with the EU, Japan, Singapore, and Switzerland — all of which are buyers of overseas carbon credits to bridge their own abatement gaps.

The accounting risk

The deal's most subtle implication is accounting: every tonne of CO2 that Norway counts toward its own target cannot be counted again in Pakistan's nationally determined contribution (NDC). Pakistan's negotiators have insisted on a "corresponding adjustment" mechanism that protects domestic NDC integrity, but the precedent of how this is operationalised will shape every subsequent ITMO deal.